Ford Motor Co. posted better-than-anticipated second-quarter net income on Wednesday and reiterated its profit projection for the year. However, the company added that management is “actively looking” at ways to reduce rising costs.
The results and remarks of the Michigan-based manufacturer somewhat echoed those of its neighbouring competitor General Motors Co., which released earnings on Tuesday.
Similar to Ford, GM announced it was reducing spending and hiring while maintaining its full-year profit projection due to an anticipated spike in demand. However, a 40% decline in its quarterly net profitability caused GM shares to fall late on Tuesday.
The stock prices of Ford and GM both performed well on Wednesday, but after the bell, investors decided to chose Ford.
In after-hours trading, Ford shares increased by 6.5 percent and GM shares increased by 0.6 percent. Ford announced that it would reinstate its dividend at the pre-pandemic level of 15 cents per share.
According to the company, higher-margin vehicles helped Ford achieve its results, which were only partially offset by rising commodity costs and expenses. Ford stated that it anticipates a $4 billion annual increase in commodity costs.
“Cost reduction will happen in our ICE business,” CEO Jim Farley said, referring to internal combustion engines.
“We are planning much less complexity in our Blue (combustion vehicle) business,” Farley informed the analysts.
However, he assured reporters that the business would talk about specific cost-cutting measures “on our own schedule.” He avoided explicitly addressing rumours that Ford would eliminate up to 8,000 people, mostly in its Ford Blue combustion vehicle division.
The automaker Ford claimed that all but one of their 2022 vehicles, the new F-150 Lightning, had already sold out and that dealer traffic is still quite strong. In comparison to the prior year, wholesale shipments to dealers increased by 35% during the quarter.
“We have not seen a slowdown in the industry,” proclaimed John Lawler, the chief financial officer.
Ford reiterated its earlier target for full-year earnings before interest and taxes (EBIT) of $11.5 billion to $12.5 billion, a 15% to 25% increase over last year, and adjusted free cash flow of $5.5 billion to $6.5 billion.
Ford reiterated its prediction of a 10-percent adjusted EBIT operating margin, which includes an 8-percent EBIT margin for electric vehicles.
Ford needs to reduce its distribution costs by $2,000 per vehicle, according to Farley, in order to compete with Tesla Inc and other manufacturers of all-electric cars. In order to do this, advertising expenses will need to be reduced, more vehicles will need to be built on demand rather than being stocked on dealer lots, and dealer profits from the sale will need to be shifted to services and products sold after the sale.
Lawler stated that the manufacturer is starting to reduce expenses across all operations, but he would not provide further information. On a conference call with reporters, he stated, “We’re not currently cost competitive.” Over a number of years, the corporation wants to cut costs by $3 billion, he said.
“We’re in much better shape now than at any other time heading into a potential recession,” Lawler said.
Profit rose just slightly to $667 million. 68 cents per share in adjusted non-GAAP earnings above the consensus estimate of 45 cents and the 13 cents reported in the prior year.
A $2.4 billion one-time mark-to-market loss on Ford’s shares in the electric vehicle startup Rivian Automotive Inc. is one of the special items. Rivian Automotive Inc. said on Wednesday that it will be laying off 6% of its workers.
Ford reported that revenue for the quarter increased substantially to $40 billion from $26.8 billion a year earlier, when supply-chain issues caused output to be reduced.